In reviewing BP’s latest Statistic Review of World Energy, the big story for world oil last year was obvious: the USA’s third straight record-breaking increase in average annual production. Just over 75% of the net increase in world oil production during 2014 came from the USA; add in Canada and 90% of the total increase came from North America. Throw in Brazil’s first significant increase in three years and you have all the world’s net gain in world oil production accounted for by three non-OPEC players. Production from all other producers combined was flat. So the question for 2015 is straightforward: will we see a repeat of those gains…and the flat-liners?
Last week oil prices remained in the month-old trading range of around $45 a barrel in New York and $48 in London despite several major geopolitical developments and much news affecting oil’s fundamentals. However, the general situation of too much oil production and slowing economic growth remained intact. During the week, Russia announced that its production hit a new post-Soviet high of 10.74 million b/d, and along with the Saudis, Moscow shows no indication of being willing to cut oil production. US production is now down about 500,000 b/d from the high set in June, but this still seems inadequate to ease the oil glut. US oil stocks have climbed in eight of the last ten Octobers due to refinery maintenance, and there is no reason to believe that this will not happen again this year.
Oil prices closed out the week about in the middle of the range where they have traded for the past month — $45.70 in New York and $48.60 in London. During September, prices bounced a dollar or two on news suggesting that demand for oil could increase or production might decline. Conversely, news suggesting that demand might sink or production might increase sent prices back down about the same amount. It appears we could be stuck in this trading range until there are better indications that the oil glut is shrinking; or more definitive news about the course of the global economy – particularly China’s; or there is some major geopolitical upheaval.
After some intra-week volatility, New York oil prices were unchanged for the week closing at $44.68. Brent, however, suffered a 3.2 percent weekly loss closing at $47.47. Much of the week’s oil-price action came on Friday after the US Federal Reserve announced on Thursday it was postponing any increase in interest rates. While such an announcement would normally support oil prices by lowering the value of the dollar, the oil markets jumped to the conclusion that the US economy must be in worse condition than is apparent and fell 5 percent in sympathy with the equity markets. A third weekly drop in the rig count did little to stem the tide as traders are getting use to the idea that small changes in the oil-rig count no longer have much impact on production.
By Art Berman. Reprinted from ArtBerman.com World oil demand increased by 1.1 million barrels per day in February. This is a potentially important data point that suggests a crude oil price recovery sooner than later. It is also important because it further supports the view that a production surplus and not weak demand is the main cause for the […]
By Robert L. Hirsch. The recent world oil supply/price decline situation looks very much like what happened in 1985-86, when the Saudis dramatically increased oil production, causing world oil prices to crater. That Saudi action was the result of their having acted as swing producer in OPEC, which under those circumstances caused a progressive loss […]
A National Energy Program – A White Paper on Achieving Energy Independence and National Transformation. By Lawrence Klaus. Revised and Updated, January 2015. In a recent post, we marked the 40th anniversary of the 1973 Oil Embargo–an event that has had profound economic and geopolitical aftershocks for the United States. The embargo itself lasted […]